Property 'decoupling' illegal if done solely to avoid taxes: High Court

Couples who transfer full ownership of their first home to one spouse - a gambit known as "decoupling" - so that the other can buy another property without the additional buyer's stamp duty (ABSD), are breaking the law if the sole purpose of the move is to avoid tax, the High Court has found.

- Tan Ooi Boon Invest Editor

The finding stemmed from a recent dispute involving an unmarried couple who held their first property in the ratio of 99 to 1 in favour of the woman. But when they broke up, the former boyfriend claimed he owned at least half of the home, and not just 1 per cent.

A reason for holding the property 99 to 1 was that they had planned a decoupling to avoid the ABSD for their second property. This would be achieved when the boyfriend transferred away his minute share so that he could buy a second property as a non-owner.

Although the decoupling did not materialise, the court scrutinised such transactions and found that owners who decouple in this manner could be committing tax evasion as well as the underpayment of stamp duty if the 99-to-1 holding was found to be a sham.

High Court Judge Lee Seiu Kin noted that while buyers were free to hold their stakes in a 99-to-1 arrangement, the transaction could be illegal if the decoupling was undertaken to avoid paying more tax.

For instance, if the 1 per cent owner gave up the share but had an arrangement to still co-own the same property, the individual would be deemed to have evaded tax by wrongful declaration of ownership interests.